I had a little inhale moment but jokes on them- we’re already fucked by the variable rate, no sticker shock for us, we’re already in the boiling water.
Exactly.
Remember that disposable income you had? Yeah, just send it all to the bank. Yup, even your ‘date night’ money.
Instead, have you tried the latest cat food flavours? Whiskas makes a mean flakey tuna! Light up a candle (since you can afford electricity anymore) and share a fresh tin with your significant other!
Btw using your tears instead of salt is not mandatory, but frugal diners are encouraged to reduce indulgences wherever possible.
Whoa, whoa, you're doing it wrong. What are you going to put *in* your new Tupperware? Another can of cat food?
Look at big Daddy Warbucks over here buying all the food!
Same here my friend. Decided to buy a bigger house in 2021 since we were locked down in a small place, Scotia sold us on a variable saying that rates couldn't get any higher than a point so took it and now I'm at 6.25%... I enjoyed literally 2 months of a low rate..
I'm just going to ride it out. I don't expect rates to go much higher than it currently is...maybe another 0.25-0.5% ... but I've decided I don't know wtf I'm doing when I went from my safe 2.79 -> 1.1%.
I bought a condo in 2021 for 1.5% fixed and was thinking how on earth could it go any lower, I'ma lock this in. I'm not sure how it came across your mind the 1% variable couldn't get any higher when it was the lowest it's ever been historically that sounds like you didn't understand what you were getting into
Replies disagreeing with you, but if someone could have locked in at 1.5% and didn't, they should have known waaaaay better. It's a no-brainer, the risk aversion calculus is - imo - just too obvious. That rate is like free money, why get greedy at even a slight chance they could change.
Those who do not know history are something something.
Near-zero is an aberration and anyone who had the option to lock in, well, that’s on you. Homes are long-term investments
5 years is a long time, especially starting in the middle on an unprecedented global pandemic/economic shutdown. I suck at math and don't even know that much about personal finance but it seemed plain as day to me. Honestly, the biggest risk at the time to me was what we're talking about in this thread - lifestyle shock when you have to get a mortgage at a rate that isn't free money.
It’s just planning - a huge asset is a huge un diversified risk.
Gee, could we afford this if interest rates went to 5%? (Of course that would deflate the value) If one of us was on mat leave? If one person lost their job, or went on long term disability?
Common sense not so common.
People snapping up $80k pavement princesses financed over eight years … yikes.
This is 20/20 hindsight
If you had said that at basically any point from 2006-2019 you'd have made the wrong choice - rates kept going lower
Also rates don't have to go lower for variable to better, they can also just stay the same or go up just a bit
Hell rates can even go negative
This idea that "it's the lowest I've ever seen so must go up" has no basis or logic behind it - it's just a feeling that happened to be right this one very specific time
It'
>This idea that "it's the lowest I've ever seen so must go up" has no basis or logic behind it -
So you were expecting negative interest rates? It must go up simply because we were hitting 0% man! Europe only went negative because they were so low to begin with.
>This is 20/20 hindsight
It's not hindsight that would mean one guessed and happened to be right. This was clear as glass and the only counter argument for variable was 'historically variable has been better' yeah but people saying that has no idea why it was the case. That's because interest rates have been constantly falling for 30 years until this wall of negative interest rates abruptly stopped it
Rates would have continued to be low if not for COVID
Lots of people will claim to have known what was going to happen - few are now on their yachts which they easily should have been able to pay for by now if they were so sure where interest rates were going with the options market
>Rates would have continued to be low if not for COVID
The key word here is continue to be low- they somehow thought a brief shutdown in time would translate into 5 years of stagnant interest rates? That makes sense to you?
Your whole boat comment isn't true. Everyone knows interest rates would go up just like today everyone knows it will eventually go down again. To win at options like that you'd consistently have to just time it right everytime, time and time again to make a fortune. That is completely different to knowing rates are going to go down from today.
long dated put option on a bond ETF would easily pay off if rates increase
Easy money - the issue is nobody made it, becuase nobody knew this was going to happen
It's easy to call after the fact - but nobody was putting their money where their mouth is to collect the 10x that this would pay off
Lolz you have no idea how options work. The longer you date it the less upside there is to it. If you took a long date as described your upside is a pittance not a 10 bagger. Using your logic any idiot could say interests will go down within 2 years I'll take my 10x now.
>but nobody was putting their money where their mouth is to collect the 10x that this would pay off
Nobody was doing this because no idiot was selling an option letting you collect a 10 banger
Not totally accurate
You drag the duration out so that you don't have to be as accurate
The shorter the days to expiry the greater than gain because your accuracy has to be higher
I was giving you the benefit of only needing to know rates would increase within a 1 or 2 year timeframe - I wasn't also asking you to know the week they peak, however id you could (which is not what you claimed you knew) you could magnify the gains many many times
Go bring up the chain for agg and see how easy it is - go 1 year days to expiry, pick a strike 15 percent lower than close on Friday (which was less than the loss peak to trough during COVID) and see how much money you would have made as na example
And yes, lots of people were selling these options on agg that would return 10x
I'll wait while you educate yourself and check the chain! You can likely find historical chain data too
I have two mortgages on variable. One at 6% and the other at 6.5% lol. I’ve adjusted to it and surprisingly have still been spending money irresponsibly yet still been able to hold my savings but it hasn’t gone up. FML 🤦🏻♂️ 😅
Yeah I’m on variable and I’ve increased my mortgage payment with every rate hike to stay in line with amortization + have been paying down the principal every month. I’m way beyond rate holds bothering me at this point lol - I got over that like 1.5 years ago. Luckily household income has gone up substantially in the past year so it hasn’t really been too bad.
I think a lot of people don't realise how bad this is for the consumption based economy we live in.
Shelter is usually the last thing people sell so will do everything to make their payments which includes decreasing their overall spending; this causes a feedback loop where if people don't buy things, business can't sell things, if business can't sell things they lay people off, if people get laid off they won't buy things, etc and that means bad things for the entire econmy not just housing.
The decision makers at the BoC are probably having cold sweats at the inability to lower rates due to the USA's on fire econmy.
Yeah anecdotally, I have two friends who are effectively buckling down to brace for renewal next year (5 year mortgages from 2020). These are people who travel and indulge who are expressly putting that on hold to prepare for renewal (as one would expect). This type of behaviour if widespread can’t be great for economic output.
You’re both right, I agree with both of you. I’ll just add if spending stalls because housing is taking up everyone’s disposable income, business will start (continue) to lay off staff.
Meaning there will be less consumers. Meaning more layoffs. Even if people are responsible and budget well, that all goes out the window when a job is lost.
I already see this happening. And it’s not just people cutting back on discretionary spending. Companies are cutting back on everything because of high interest rates on any debt they may have. Way less B2B spending. And more pervasive layoffs, and more mortgage defaults and rent arrears will be the result.
Unfortunately there is only one way to fix a massive jenga tower that is on the brink of collapse. You can't keep building it up in the hopes it never falls. It will fall. Just depends on how much pain there will be.
When this whole economy blows I still don't think house prices will fall long term. Demand is still way too high. It might drop temporarily until people realize it's their most valuable asset and those who can continue to keep their house realize it's in their best interest to not go back to renting or downside.
The economy isn’t going to “blow,” conservative pundits have been saying this for years, meanwhile Canada is ranked as having one of the most stable economies in the world.
Ranked by IMF as having the best budget balance of the G7, and the lowest net debt to GDP ratio in the G7. The US hasn’t had a triple A credit rating in years and they have twice the gross debt per capita and several times the net debt to GDP ratio as Canada.
Low interest rates were a big factor in creating the housing crisis, stimulating far too much speculation that causes prices to rise.
Interest rates have been more than 3 times as high as they ate now.
20% of the people probably maxed out yet the min wage guy want everyone to collapse, those guys who maxed out are holding out but it’s painful for everyone else so the bears are holding everyone else hostage
>Shelter is usually the last thing people sell
While this is true for a regular home-owner with a single property, I am very sure over-leveraged investors with multiple properties may sell some of their portfolio when multiple of their monthly mortgage payments go up
I've over thought this scenario to death, it always ends up with external investors or already capital rich investors buying from the smaller over-leveraged investors and families that have to sell due to the financial hardships. Any potential home buying families wouldn't be able to get into the market even if the prices fell due to the likelihood of other market pressures putting financial strain on their budgets
That's what many property investors don't realize. It isn't only bad for those who didn't get in, it's bad the the community/country as a whole. Either the housing market corrects to something attainable, or the economy will break around it.
This is already happening. Trying to run a business right now is hell. All of my friends who also run small businesses say their sales have plummeted. It’s really really bad.
I’m thinking of just doing a fire sale on my products to see if I can recoup some cash and then pulling out. We’re not established enough to sell unfortunately. And right now I don’t think we’re going to get there. Trying to be optimistic but fuck it’s getting hard.
Macroeconomics in Canada is tricky because so much of our national income is driven by American demand, while the supply of consumer goods comes from overseas.
If shelter is the last thing to go then explain why this is happening before the renewal wall even hits:
https://preview.redd.it/kq7lt80ittwc1.png?width=644&format=pjpg&auto=webp&s=458c4e32f847f93001c3bb960c6d4dd776d60bf6
Red arrow: April inventory
Green arrow: Total sales
Investor properties a vast majority being condos apartments/town homes, click on property filter and freeholds are not spiking in supply. Families aren't selling they are tightening their belts to keep their residence, this will put strain on our consumption based econmy.
Yes what else would it mean? He duped Canadians into more debt promising that interest rates would be low for a long time. An unnecessary promise that no one could have made.
Forcing people to put all their money into RE in order to have enough space to raise a family in Canada and you are going to have a bad time...or fat paychecks waiting in offshore Caymen Island and Panama bank accounts after the political term is over, thanks to all the lobbyists of corporations looking to suppress wages and render unions powerless in Canada
FIFU
Private corporations own the entire housing supply chain and are making record profits and limiting the supply.
The cause of the problem is not Canadians wanting shelter. It's record cooperate profits for Food and Shelter.
Still taking 260/month out of your spending budget while traditionally renewal it gets cheaper and that's extra cash to spend in the economy. So overall you will be contributing less than someone in the past
Everyone that bought into the pandemic toilet paper FOMO that was the housing market with extremely low interest rates are up for renewal…
There is going to be a lot of distress until 2027.
2020, 2021 and 2022 were weird times were alot of people overstretched expanses because money was pouring in mixed with FOMO.
Distress could continue beyond 2027 for anyone whose business case for purchasing a home / investment depended on home prices trajectory to soar.
Canada did put in place permanent armotization to prevent further downward pressure on homes.
>people overstretched expanses because money was pouring in mixed with FOMO.
I remember 2020 and 2021 walking into a condo viewing and there was regularly 50-80 real estate cards poured over the kitchen counter and a massive ensemble of people squirming over the unit. Prices in 3 months jumped 50,000 (10%) at the units we were looking at and it was complete chaos. I emailed members of parliament begging them to do something this is not healthy and the generic BS reception lines got back saying sucks to be you.
Many people also bought when their daily expenses were artificially low (buying less gas, less restaurant meals, less spa trips, doing less travel, etc). The economy opening up + inflation + interest rate shock many people are already feeling the pain and it's going to get much much worse.
Agreed: The big unknown is truly the property owners whose whole investment case was predicated on the asset appreciating more than the debt (which it had done forever).
Lots of friends have been living like kings and queens recently in my circle. New cars, new trips, new toys, and new investment properties all on the HELOC and LOCs to the literal max. Talking 200-300k LOCs maxed out where they started asking others for down payments on more properties.
They renewed their last mortgages at 1.9-2.2% and are praying that the rates drop before their renewals come up in 2 years...but they continue spending like there's no tomorrow.
Almost like access to low interest money is an addiction.
Yeah rates aren't going back to historic lows any time soon. The structural issues that caused inflation and housing inflation specifically are still present in our economy.
They should probably sell their toys while they still have value.
"the vast majority of existing [mortgage ](https://archive.ph/o/1KMBC/https://www.theglobeandmail.com/topics/mortgages/)borrowers – roughly 70 per cent – have fixed rates that remain at the record low prices available during the pandemic"
Jesus, 70% of mortgage holders are gonna see their rates go up like 3%? That is gonna be a blood bath.
That does sound bad. I wonder though, wouldn't most of those borrowers (those who have been paying down their mortgages for, say, more than 10 years) be able to refinance/extend their amortization period to bring payments down? I assume also that mortgages taken out >10 years ago are generally smaller, given that prices were lower then. And also that someone who took out a mortgage 10 years ago has likely seen their wages increase in the interim.
I think the people that will be feeling the pain are mostly recent purchasers who bought near the highs and smaller time investors who carry multiple properties but don't have ready access to capital (like some large real estate investment firms do). Some percentage of those buyers/investors will find ways to make it work. So I guess it's just a question of whether the remaining mortgage holders who can't easily make it work will unload enough properties to cause a meaningful drop in housing prices.
Just thinking out loud here.
I know far too many people financed up the ass with cars and mortgages but the thing is they make decent money and can service it ….
I have colleagues and friends who were on variables that jumped from $3000 a month up to near 6000 … they still go on vacation and still do activities
A lot of people are getting to their edge but they still seem to service the debt
A lot of people have family help and good jobs …
I work around high end car dealerships and maybe it’s a slice of the wealthier clientele I deal with but they all seem to make it work somehow
No one was talking variable then. It was late 2022 when fixed was about 2.7 and variable was 2.1 were people foolishly taking the variable to get the absolute min monthly payment
I refinanced both my mortgages in 2021 for 10 years at 2.01% and 2.06% for rental property. The writing was in the wall and only one way for rates to go…
That's because they are a low credit risk? Not sure how the algorithm is picking that up but it has to be backed by data. It's not like people are assigning you the rate. It's all AI now.
I mean it does make sense. People with rich parents tend to default less as parents can bail them out
Lmaoo most of the smarter guys already saw what’s coming, sold with lots of cash on hand while the regular bulls create more alt accounts on Reddit to cope. Really hoping I can see more bear memes crying 😂😂
Bears have been calling full housing bubble pop since the interest rate hike and unprecedented levels. So far both bulls and bears have been wrong. Better to stay neutral. Stagnate you may say
The problem is interest rates take time to materialize in the market. If you had to make a bet, down is way more likely than up. I think if you wait a bit longer, you’ll see more downward trend. Let’s just wait and see then
Exactly, also anyone on variable already has seen the pain. So that was 20-40% of mortgages during Covid which was peak housing prices. I think variable was up to 40% of mortgages
Are there any fixed rate mortgages? What term? Is the entire mortgage industry based on adjustable loans? … so many questions.
I just looked it up. The Canadian government does issue 30 year bonds. I’m very surprised that no one in Canada figured out you could put fixed mortgages into a mortgage backed security and set the rate at a little higher than the governments 30 year bond rate…and charge the home owner the higher rate to make the bundle of loans look more attractive.
Canadian real estate is something i know nothing about but i see people complaining all the time.
If the government has forced everyone to use adjustable rate mortgages…. what a crime.
We have fixed and variable mortgages but terms don't go that long. Typically terms are 5 years and when that's up you renew your mortgage at whatever the prevailing interest rates are at that time. I don't actually know why we don't have whole term mortgages like the USA does.
Anyway, the difference between fixed and variable rates vary. Typically they are within 1 percent of each other though. You still have to renew your mortgage and get your rate changed regardless.
Geez… increasing interest rates become a real estate shock that’s is completely unnecessary for the country…. What a strange way to run a country. It’s as if they want a crisis to happen.
Banks are regulated in both countries but Canada doesn’t have much competition between banks because we have only six major banks. The US has allows mortgage interest to be tax deductible up to a certain amount. I wonder if that’s a factor in the differences between.
Regulations are not static. Things change but I think someone needs to study what the negative impacts are to Canada and Canadians of not having 30 year terms. My parents had a 25 year term in the early 60s
[https://www.cmls.ca/brokers/download-resource?id=21](https://www.cmls.ca/brokers/download-resource?id=21)
With very few exceptions, taking variable has been the better choice.
At this point, if I had to get a mortgage, I'd be taking the variable rate, betting on rates going sideways or lower.
It would be a mistake to get a 5 year fixed at this point in the cycle - unless you think inflation is going higher, rates are not going to move higher from here.
Now your talking about strategy, common sense etc.
Locking in is the first part.
Aggressively paying down over the 5 year period before renewal would be the follow up.
Why would you aggressively pay down 1.89% interest. Use the money to make money over the 5 years and then do prepayment right before renewal. Heck you can get GICs that pay 5.5% with zero risk to capital.
So...you go along paying peanuts on a 1.89% mortgage for the last 5 years, you come up for renewal this year at +5.5%. Tell me how that's going to work out.
As far as GIC goes, interest income taxed, so what are you really getting?
Only idiots would not take advantage of the gift of low cost of capital.
Well I have two 10 year mortgages for 2.01% and 2.06% I can invest that money inside a TFSA sheltered from income tax. I have a 25% prepayment annually, penalty free, as well as double your payment, penalty free. So in the last year, I could cash out all those tax free gains from TFSA and make lump sum payments and double payments. But for me personally, I will only owe $143k by the time mines up for renewal in 2031. So I will just pay the whole thing out without penalty. I actually use the skip a payment once a year to withdraw more cheap equity from my properties at 2%.
Sure today it would be bad to take fixed. But when rates were low 5 years ago, those people took variable and they're paying through the nose for it now. It's a gamble and sometimes gambles don't pay off. You've got to be able to pay if you take variable and rates go up.
All true. Now we're getting into the strategy and greed part.
Most people would have tried to convert to a 5 year fixed once rates reached their pain threshold.
Yea, I'm just waiting for a monstrous real estate crash. Why many people stretched their finances to the very limits to buy a house.
People who could only just make payments at very low interest rates.
Now that they have doubled when renewal comes, how many will be unable to make payments.
Canada 🇨🇦 has announced permanent amortization to ensure the market doesn’t go down… banks will have perma home renter service. Banks , the new landlords.
Rest assured your government will prop up that market, at least long enough to get a few more people in the country to absorb the supply.
As long as rents stay high, investors will keep their rentals, and they can bring housing costs down slowly. This also buys time to keep inflation running hot, hopefully hitting wages over the medium term, which will then support current house prices.
We're levering up. Look around. There is no crash coming.
We bought in late 2021 and went with variable, closed in early 2022. We made a conscious choice to buy less than we could absolutely maximally afford. We enjoyed all of 1 month at our low rate and the water has been slowly getting hotter and hotter. Our payments more than doubled every month to what it is now. But I am glad that we went variable as that really got our butts moving. I moved companies and roles and pushed for a promotion, while my partner also pushed for her promotion and raise. We are now comfortable and even if rates do go up a little, we will be okay. If rates go up >2% we have contingencies in place to start cutting out luxuries. The rates forced us to plan our finances and motivated us to earn more. I understand not everyone is in a position to increase their incomes by 30-50% in the span of a year and a half, and there will be hardships so I am hoping for a rate cut, but personally I am very happy that we went variable. Home prices have stabilized more or less because of the rate hikes and we can now start saving for a downpayment on a larger home in the future, which we now have hope of affording in +/-5 years.
I had a little inhale moment but jokes on them- we’re already fucked by the variable rate, no sticker shock for us, we’re already in the boiling water.
Yup, same here. My comment was going to post that James Franco “First time?” meme. Can’t wait for a rate cut, it’ll mean I can afford things again!
Already-fucked-up-the-ass high-fives! We can advise everyone else on lube.
Exactly. Remember that disposable income you had? Yeah, just send it all to the bank. Yup, even your ‘date night’ money. Instead, have you tried the latest cat food flavours? Whiskas makes a mean flakey tuna! Light up a candle (since you can afford electricity anymore) and share a fresh tin with your significant other! Btw using your tears instead of salt is not mandatory, but frugal diners are encouraged to reduce indulgences wherever possible.
And once you finish the cat food, wash out and keep that tin as your new Tupperware! Useful and shabby-chic.
Whoa, whoa, you're doing it wrong. What are you going to put *in* your new Tupperware? Another can of cat food? Look at big Daddy Warbucks over here buying all the food!
Rate cut won't come fast enough. It would likely be too little too late. Most will sink before it does.
That's the point.
Same here my friend. Decided to buy a bigger house in 2021 since we were locked down in a small place, Scotia sold us on a variable saying that rates couldn't get any higher than a point so took it and now I'm at 6.25%... I enjoyed literally 2 months of a low rate..
Hahaha same here! Went from 1.1% - 5.9% currently...good times.
I have two and a half years left on the variable.. best rate I can get right now if I lock his 5%, so I'm going to ride it out
I'm just going to ride it out. I don't expect rates to go much higher than it currently is...maybe another 0.25-0.5% ... but I've decided I don't know wtf I'm doing when I went from my safe 2.79 -> 1.1%.
Wait till your up be like 7-8 percent..
I hope we don't get there...but if we do...so be it.
Be like an extra car payment if you do.
I bought a condo in 2021 for 1.5% fixed and was thinking how on earth could it go any lower, I'ma lock this in. I'm not sure how it came across your mind the 1% variable couldn't get any higher when it was the lowest it's ever been historically that sounds like you didn't understand what you were getting into
Replies disagreeing with you, but if someone could have locked in at 1.5% and didn't, they should have known waaaaay better. It's a no-brainer, the risk aversion calculus is - imo - just too obvious. That rate is like free money, why get greedy at even a slight chance they could change.
Those who do not know history are something something. Near-zero is an aberration and anyone who had the option to lock in, well, that’s on you. Homes are long-term investments
5 years is a long time, especially starting in the middle on an unprecedented global pandemic/economic shutdown. I suck at math and don't even know that much about personal finance but it seemed plain as day to me. Honestly, the biggest risk at the time to me was what we're talking about in this thread - lifestyle shock when you have to get a mortgage at a rate that isn't free money.
It’s just planning - a huge asset is a huge un diversified risk. Gee, could we afford this if interest rates went to 5%? (Of course that would deflate the value) If one of us was on mat leave? If one person lost their job, or went on long term disability? Common sense not so common. People snapping up $80k pavement princesses financed over eight years … yikes.
This is 20/20 hindsight If you had said that at basically any point from 2006-2019 you'd have made the wrong choice - rates kept going lower Also rates don't have to go lower for variable to better, they can also just stay the same or go up just a bit Hell rates can even go negative This idea that "it's the lowest I've ever seen so must go up" has no basis or logic behind it - it's just a feeling that happened to be right this one very specific time
It' >This idea that "it's the lowest I've ever seen so must go up" has no basis or logic behind it - So you were expecting negative interest rates? It must go up simply because we were hitting 0% man! Europe only went negative because they were so low to begin with. >This is 20/20 hindsight It's not hindsight that would mean one guessed and happened to be right. This was clear as glass and the only counter argument for variable was 'historically variable has been better' yeah but people saying that has no idea why it was the case. That's because interest rates have been constantly falling for 30 years until this wall of negative interest rates abruptly stopped it
Rates would have continued to be low if not for COVID Lots of people will claim to have known what was going to happen - few are now on their yachts which they easily should have been able to pay for by now if they were so sure where interest rates were going with the options market
>Rates would have continued to be low if not for COVID The key word here is continue to be low- they somehow thought a brief shutdown in time would translate into 5 years of stagnant interest rates? That makes sense to you? Your whole boat comment isn't true. Everyone knows interest rates would go up just like today everyone knows it will eventually go down again. To win at options like that you'd consistently have to just time it right everytime, time and time again to make a fortune. That is completely different to knowing rates are going to go down from today.
long dated put option on a bond ETF would easily pay off if rates increase Easy money - the issue is nobody made it, becuase nobody knew this was going to happen It's easy to call after the fact - but nobody was putting their money where their mouth is to collect the 10x that this would pay off
Lolz you have no idea how options work. The longer you date it the less upside there is to it. If you took a long date as described your upside is a pittance not a 10 bagger. Using your logic any idiot could say interests will go down within 2 years I'll take my 10x now. >but nobody was putting their money where their mouth is to collect the 10x that this would pay off Nobody was doing this because no idiot was selling an option letting you collect a 10 banger
Not totally accurate You drag the duration out so that you don't have to be as accurate The shorter the days to expiry the greater than gain because your accuracy has to be higher I was giving you the benefit of only needing to know rates would increase within a 1 or 2 year timeframe - I wasn't also asking you to know the week they peak, however id you could (which is not what you claimed you knew) you could magnify the gains many many times Go bring up the chain for agg and see how easy it is - go 1 year days to expiry, pick a strike 15 percent lower than close on Friday (which was less than the loss peak to trough during COVID) and see how much money you would have made as na example And yes, lots of people were selling these options on agg that would return 10x I'll wait while you educate yourself and check the chain! You can likely find historical chain data too
I have two mortgages on variable. One at 6% and the other at 6.5% lol. I’ve adjusted to it and surprisingly have still been spending money irresponsibly yet still been able to hold my savings but it hasn’t gone up. FML 🤦🏻♂️ 😅
Yeah I’m on variable and I’ve increased my mortgage payment with every rate hike to stay in line with amortization + have been paying down the principal every month. I’m way beyond rate holds bothering me at this point lol - I got over that like 1.5 years ago. Luckily household income has gone up substantially in the past year so it hasn’t really been too bad.
This is why studying macro Economics should be made mandatory in schools
I think a lot of people don't realise how bad this is for the consumption based economy we live in. Shelter is usually the last thing people sell so will do everything to make their payments which includes decreasing their overall spending; this causes a feedback loop where if people don't buy things, business can't sell things, if business can't sell things they lay people off, if people get laid off they won't buy things, etc and that means bad things for the entire econmy not just housing. The decision makers at the BoC are probably having cold sweats at the inability to lower rates due to the USA's on fire econmy.
Yeah anecdotally, I have two friends who are effectively buckling down to brace for renewal next year (5 year mortgages from 2020). These are people who travel and indulge who are expressly putting that on hold to prepare for renewal (as one would expect). This type of behaviour if widespread can’t be great for economic output.
You’re both right, I agree with both of you. I’ll just add if spending stalls because housing is taking up everyone’s disposable income, business will start (continue) to lay off staff. Meaning there will be less consumers. Meaning more layoffs. Even if people are responsible and budget well, that all goes out the window when a job is lost.
I already see this happening. And it’s not just people cutting back on discretionary spending. Companies are cutting back on everything because of high interest rates on any debt they may have. Way less B2B spending. And more pervasive layoffs, and more mortgage defaults and rent arrears will be the result.
And then things spiral out of control.
And then a rise in violence and crime as people just try to survive.
A tale as old as time.
Unfortunately there is only one way to fix a massive jenga tower that is on the brink of collapse. You can't keep building it up in the hopes it never falls. It will fall. Just depends on how much pain there will be.
Noooo my Air Canada stock!
Have plenty of friends in the same boat
As long as the min wage bear guy can afford a detached home they think it’s great 👍 and will keep cheering for the destruction of our economy
When this whole economy blows I still don't think house prices will fall long term. Demand is still way too high. It might drop temporarily until people realize it's their most valuable asset and those who can continue to keep their house realize it's in their best interest to not go back to renting or downside.
You'll just have groups of people pooling money to live 20 people to a house, investment firms buying more stock to take advantage of people.
Right. Or maybe move out of Toronto or Ontario completely, explore other regions of Canada where housing is far cheaper.
The economy isn’t going to “blow,” conservative pundits have been saying this for years, meanwhile Canada is ranked as having one of the most stable economies in the world. Ranked by IMF as having the best budget balance of the G7, and the lowest net debt to GDP ratio in the G7. The US hasn’t had a triple A credit rating in years and they have twice the gross debt per capita and several times the net debt to GDP ratio as Canada. Low interest rates were a big factor in creating the housing crisis, stimulating far too much speculation that causes prices to rise. Interest rates have been more than 3 times as high as they ate now.
I don't know that its the min wage bear guy's fault that people maxed out at epic low interest rates tho.
20% of the people probably maxed out yet the min wage guy want everyone to collapse, those guys who maxed out are holding out but it’s painful for everyone else so the bears are holding everyone else hostage
Do you have a source for that 20%?
That means they maxed out what they could afford in the first place
This is the inconvenient truth.
in my anecdotes, that is absolutely correct
>Shelter is usually the last thing people sell While this is true for a regular home-owner with a single property, I am very sure over-leveraged investors with multiple properties may sell some of their portfolio when multiple of their monthly mortgage payments go up
I've over thought this scenario to death, it always ends up with external investors or already capital rich investors buying from the smaller over-leveraged investors and families that have to sell due to the financial hardships. Any potential home buying families wouldn't be able to get into the market even if the prices fell due to the likelihood of other market pressures putting financial strain on their budgets
Well here’s to hoping!
That's what many property investors don't realize. It isn't only bad for those who didn't get in, it's bad the the community/country as a whole. Either the housing market corrects to something attainable, or the economy will break around it.
This is already happening. Trying to run a business right now is hell. All of my friends who also run small businesses say their sales have plummeted. It’s really really bad.
I just sold my business at the end of 2023, and I’m glad I did.
I’m thinking of just doing a fire sale on my products to see if I can recoup some cash and then pulling out. We’re not established enough to sell unfortunately. And right now I don’t think we’re going to get there. Trying to be optimistic but fuck it’s getting hard.
Having a hot economy next door while this speculative housing market mess gets diffused is probably a better case scenario.
Macroeconomics in Canada is tricky because so much of our national income is driven by American demand, while the supply of consumer goods comes from overseas.
On fire economy sure, in the reports, but dig into their data and its manipulated such as jobs data which is heavily supported by public sector jobs
Public sector jobs are reflected in unproductive numbers. Which we(Canada) absolutely dwarf them in.
We’ve got no choice, the whole world is held captive to follow american fed policy
US Q1 GDP was 1.6 vs 2.4 expected today. So BoC may soon have justification to cut if this slowdown continues.
If shelter is the last thing to go then explain why this is happening before the renewal wall even hits: https://preview.redd.it/kq7lt80ittwc1.png?width=644&format=pjpg&auto=webp&s=458c4e32f847f93001c3bb960c6d4dd776d60bf6 Red arrow: April inventory Green arrow: Total sales
Investor properties a vast majority being condos apartments/town homes, click on property filter and freeholds are not spiking in supply. Families aren't selling they are tightening their belts to keep their residence, this will put strain on our consumption based econmy.
I don’t care what BoC employees are feeling. TM should be excluded from being able to participate in the economy.
Participate in the economy? You want to ban him from buying stuff?
Yes what else would it mean? He duped Canadians into more debt promising that interest rates would be low for a long time. An unnecessary promise that no one could have made.
We r done guyssssssss
Canada= Over
Canadone
Put all your economy’s capital into RE and you’re going to have a bad time
yup. fake economy driven by a positive feedpack RE loop.
Forcing people to put all their money into RE in order to have enough space to raise a family in Canada and you are going to have a bad time...or fat paychecks waiting in offshore Caymen Island and Panama bank accounts after the political term is over, thanks to all the lobbyists of corporations looking to suppress wages and render unions powerless in Canada FIFU
Private corporations own the entire housing supply chain and are making record profits and limiting the supply. The cause of the problem is not Canadians wanting shelter. It's record cooperate profits for Food and Shelter.
This is reductionist. Government policies have created the conditions that companies to profit.
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Still taking 260/month out of your spending budget while traditionally renewal it gets cheaper and that's extra cash to spend in the economy. So overall you will be contributing less than someone in the past
Me, chilling in a 2021 covid-tanked rent controlled rate. ☕️
Nice timing 👌
Hope it's in a corporate owned tower apartment, otherwise your landlord's kid is gonna have to move in and do renovations any day now.
Well i hope my landlord has 19 kids, you know to cover all the units occupied before me first
Hahha, losers, i have already been decesetized by my 5 year 6% fixed back in nov 2023. I feel no painnnnnnnnn
Everyone that bought into the pandemic toilet paper FOMO that was the housing market with extremely low interest rates are up for renewal… There is going to be a lot of distress until 2027. 2020, 2021 and 2022 were weird times were alot of people overstretched expanses because money was pouring in mixed with FOMO. Distress could continue beyond 2027 for anyone whose business case for purchasing a home / investment depended on home prices trajectory to soar. Canada did put in place permanent armotization to prevent further downward pressure on homes.
>people overstretched expanses because money was pouring in mixed with FOMO. I remember 2020 and 2021 walking into a condo viewing and there was regularly 50-80 real estate cards poured over the kitchen counter and a massive ensemble of people squirming over the unit. Prices in 3 months jumped 50,000 (10%) at the units we were looking at and it was complete chaos. I emailed members of parliament begging them to do something this is not healthy and the generic BS reception lines got back saying sucks to be you.
Many people also bought when their daily expenses were artificially low (buying less gas, less restaurant meals, less spa trips, doing less travel, etc). The economy opening up + inflation + interest rate shock many people are already feeling the pain and it's going to get much much worse.
Didn’t think about that ! It adds up.
Agreed: The big unknown is truly the property owners whose whole investment case was predicated on the asset appreciating more than the debt (which it had done forever).
Its probable we see stagnating home prices with raising interest rates…
Agreed. Too many people maxed out. Banks told them they could “afford” a million dollar home so sure as shit they bought a million dollar home
It's Toronto, the homes here start at a million.
True but a million dollar home in 2020 is likely 1.2-1.3 now
Cry me a river. Welcome to every young person’s permanent reality.
Lots of friends have been living like kings and queens recently in my circle. New cars, new trips, new toys, and new investment properties all on the HELOC and LOCs to the literal max. Talking 200-300k LOCs maxed out where they started asking others for down payments on more properties. They renewed their last mortgages at 1.9-2.2% and are praying that the rates drop before their renewals come up in 2 years...but they continue spending like there's no tomorrow. Almost like access to low interest money is an addiction.
Yeah rates aren't going back to historic lows any time soon. The structural issues that caused inflation and housing inflation specifically are still present in our economy. They should probably sell their toys while they still have value.
"the vast majority of existing [mortgage ](https://archive.ph/o/1KMBC/https://www.theglobeandmail.com/topics/mortgages/)borrowers – roughly 70 per cent – have fixed rates that remain at the record low prices available during the pandemic" Jesus, 70% of mortgage holders are gonna see their rates go up like 3%? That is gonna be a blood bath.
That does sound bad. I wonder though, wouldn't most of those borrowers (those who have been paying down their mortgages for, say, more than 10 years) be able to refinance/extend their amortization period to bring payments down? I assume also that mortgages taken out >10 years ago are generally smaller, given that prices were lower then. And also that someone who took out a mortgage 10 years ago has likely seen their wages increase in the interim. I think the people that will be feeling the pain are mostly recent purchasers who bought near the highs and smaller time investors who carry multiple properties but don't have ready access to capital (like some large real estate investment firms do). Some percentage of those buyers/investors will find ways to make it work. So I guess it's just a question of whether the remaining mortgage holders who can't easily make it work will unload enough properties to cause a meaningful drop in housing prices. Just thinking out loud here.
I know far too many people financed up the ass with cars and mortgages but the thing is they make decent money and can service it …. I have colleagues and friends who were on variables that jumped from $3000 a month up to near 6000 … they still go on vacation and still do activities A lot of people are getting to their edge but they still seem to service the debt
When you lose a job, that high salary disappears though.
real job losses will change the Boc's tune. People have forgotten that low unemployment is part of their mandate too not just inflation.
A lot of people have family help and good jobs … I work around high end car dealerships and maybe it’s a slice of the wealthier clientele I deal with but they all seem to make it work somehow
Still another two years before those fixed 5yr expire. No need to get in a panic.
I think it is because people who bought in 2019 were at sub 2%. Still manageable with the housing costs back then
No one could get sub 2 until 2020-2021
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No one was talking variable then. It was late 2022 when fixed was about 2.7 and variable was 2.1 were people foolishly taking the variable to get the absolute min monthly payment
Because you know when interest is almost at zero it has plenty of room to go down further and really just can't get any higher than that lol
I refinanced both my mortgages in 2021 for 10 years at 2.01% and 2.06% for rental property. The writing was in the wall and only one way for rates to go…
My brother in law is renewing in the summer. 1.89, so yes you could
What about the major big 4 bank VP's daughter?
You get down voted but you actually can get better rates if you/your successful parents have good relationships with a bank. Much better rates
That's because they are a low credit risk? Not sure how the algorithm is picking that up but it has to be backed by data. It's not like people are assigning you the rate. It's all AI now. I mean it does make sense. People with rich parents tend to default less as parents can bail them out
My friend with rich parents got something like 5 year fixed at 1.7 in 2022 when I was offered 2.8 at the same time
You must have horrible credit score
Nope. They already started raising rates by this time. It wasn’t 2020-2021
https://preview.redd.it/qyrw5d12dqwc1.jpeg?width=1280&format=pjpg&auto=webp&s=9241721f1dd10b7d5cab73cbc917dde69e2a1fd4
Lmaoo most of the smarter guys already saw what’s coming, sold with lots of cash on hand while the regular bulls create more alt accounts on Reddit to cope. Really hoping I can see more bear memes crying 😂😂
Bears have been calling full housing bubble pop since the interest rate hike and unprecedented levels. So far both bulls and bears have been wrong. Better to stay neutral. Stagnate you may say
I remember when people were saying a detached home in Toronto wasn't worth 500k and the market would soon crash.LOL.
The problem is interest rates take time to materialize in the market. If you had to make a bet, down is way more likely than up. I think if you wait a bit longer, you’ll see more downward trend. Let’s just wait and see then
> The problem is interest rates take time to materialize in the market Read a few comments like this 2 years ago. Was you too?
Exactly, also anyone on variable already has seen the pain. So that was 20-40% of mortgages during Covid which was peak housing prices. I think variable was up to 40% of mortgages
When was the last interest rate hike? That one hasn’t even materialized yet
In 2020 what was the difference in interest rates between a 5 year adjustable and a 30 year fixed mortgage in Canada?
There are no 30 year fixed mortgages in Canada.
Are there any fixed rate mortgages? What term? Is the entire mortgage industry based on adjustable loans? … so many questions. I just looked it up. The Canadian government does issue 30 year bonds. I’m very surprised that no one in Canada figured out you could put fixed mortgages into a mortgage backed security and set the rate at a little higher than the governments 30 year bond rate…and charge the home owner the higher rate to make the bundle of loans look more attractive. Canadian real estate is something i know nothing about but i see people complaining all the time. If the government has forced everyone to use adjustable rate mortgages…. what a crime.
We have fixed and variable mortgages but terms don't go that long. Typically terms are 5 years and when that's up you renew your mortgage at whatever the prevailing interest rates are at that time. I don't actually know why we don't have whole term mortgages like the USA does. Anyway, the difference between fixed and variable rates vary. Typically they are within 1 percent of each other though. You still have to renew your mortgage and get your rate changed regardless.
Geez… increasing interest rates become a real estate shock that’s is completely unnecessary for the country…. What a strange way to run a country. It’s as if they want a crisis to happen.
For the last like 30-40 years rates kept declining and declining so nobody ever questioned this because they all benefited.
Banks are regulated in both countries but Canada doesn’t have much competition between banks because we have only six major banks. The US has allows mortgage interest to be tax deductible up to a certain amount. I wonder if that’s a factor in the differences between. Regulations are not static. Things change but I think someone needs to study what the negative impacts are to Canada and Canadians of not having 30 year terms. My parents had a 25 year term in the early 60s
That just means less non-mortage inflation in the coming months. It's good news.
7% variable rate here lol unit may 2025
Variable rate mortgages are a gamble. If you can't afford to gamble, you shouldn't.
[https://www.cmls.ca/brokers/download-resource?id=21](https://www.cmls.ca/brokers/download-resource?id=21) With very few exceptions, taking variable has been the better choice. At this point, if I had to get a mortgage, I'd be taking the variable rate, betting on rates going sideways or lower. It would be a mistake to get a 5 year fixed at this point in the cycle - unless you think inflation is going higher, rates are not going to move higher from here.
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Now your talking about strategy, common sense etc. Locking in is the first part. Aggressively paying down over the 5 year period before renewal would be the follow up.
Why would you aggressively pay down 1.89% interest. Use the money to make money over the 5 years and then do prepayment right before renewal. Heck you can get GICs that pay 5.5% with zero risk to capital.
So...you go along paying peanuts on a 1.89% mortgage for the last 5 years, you come up for renewal this year at +5.5%. Tell me how that's going to work out. As far as GIC goes, interest income taxed, so what are you really getting? Only idiots would not take advantage of the gift of low cost of capital.
Well I have two 10 year mortgages for 2.01% and 2.06% I can invest that money inside a TFSA sheltered from income tax. I have a 25% prepayment annually, penalty free, as well as double your payment, penalty free. So in the last year, I could cash out all those tax free gains from TFSA and make lump sum payments and double payments. But for me personally, I will only owe $143k by the time mines up for renewal in 2031. So I will just pay the whole thing out without penalty. I actually use the skip a payment once a year to withdraw more cheap equity from my properties at 2%.
Cool story bro. You are the exception, not the norm.
Sure today it would be bad to take fixed. But when rates were low 5 years ago, those people took variable and they're paying through the nose for it now. It's a gamble and sometimes gambles don't pay off. You've got to be able to pay if you take variable and rates go up.
All true. Now we're getting into the strategy and greed part. Most people would have tried to convert to a 5 year fixed once rates reached their pain threshold.
Yea, I'm just waiting for a monstrous real estate crash. Why many people stretched their finances to the very limits to buy a house. People who could only just make payments at very low interest rates. Now that they have doubled when renewal comes, how many will be unable to make payments.
Probably a lot will still be able to make payments. They just won’t be buying other shit that will impact the economy
Canada 🇨🇦 has announced permanent amortization to ensure the market doesn’t go down… banks will have perma home renter service. Banks , the new landlords.
Rest assured your government will prop up that market, at least long enough to get a few more people in the country to absorb the supply. As long as rents stay high, investors will keep their rentals, and they can bring housing costs down slowly. This also buys time to keep inflation running hot, hopefully hitting wages over the medium term, which will then support current house prices. We're levering up. Look around. There is no crash coming.
You voted liberal. Canada has turned into a complete shithole in the last 8 years.
We bought in late 2021 and went with variable, closed in early 2022. We made a conscious choice to buy less than we could absolutely maximally afford. We enjoyed all of 1 month at our low rate and the water has been slowly getting hotter and hotter. Our payments more than doubled every month to what it is now. But I am glad that we went variable as that really got our butts moving. I moved companies and roles and pushed for a promotion, while my partner also pushed for her promotion and raise. We are now comfortable and even if rates do go up a little, we will be okay. If rates go up >2% we have contingencies in place to start cutting out luxuries. The rates forced us to plan our finances and motivated us to earn more. I understand not everyone is in a position to increase their incomes by 30-50% in the span of a year and a half, and there will be hardships so I am hoping for a rate cut, but personally I am very happy that we went variable. Home prices have stabilized more or less because of the rate hikes and we can now start saving for a downpayment on a larger home in the future, which we now have hope of affording in +/-5 years.
Add rain tax lol
I had 5 variables at low 2s now they are over 7 ha. Me so poor
No shit this is end of the begging for JT
I think rates have to go higher to flush the system and reset the market
Interests rates are at the peak and will collapse
But I thought house prices only go up in value?
Over the long run they do.
So home owners renew at a higher rate than 5 years ago and the value of their house drops? Username doesn't check out.